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Massive Discrepancy In July Employment Report Requires Explanation

Aug. 3, 2012 11:19 AM ETby: Daryl Montgomery

According to the Labor Department, the U.S. added 163,000 jobs in July. Also according to the Labor Department, the U.S. lost 195,000 jobs in July. So the U.S. economy is either doing OK or it's falling apart big time. Or maybe something between the two is happening. Confused? You should be.

Two separate surveys are used for the employment report. In one, they ask businesses about the amount of hiring they've done in the previous month and in the other the ask people whether or not they have a job. The amount of jobs created for the month is determined by the business survey and the unemployment rate from the survey of households. As more than one article on the July employment report pointed out today, "economists say the business survey is more reliable." So if you think you're unemployed, but an economist says you have a job, the economist is right.

The unemployment rate ticked up to 8.3% according to the household data. The two surveys have frequently not seemed to match in the past with minimal job gains resulting in drops in the unemployment rate. The Labor Department explained that this occurred because millions of people have left the U.S. labor force since the "recovery" began in 2009 (150,000 more left in July). Even though these people are unemployed, they are not counted as unemployed and this makes the unemployment rate look better. Why millions of people would stop looking for work during a "recovery" has never been answered. Usually, this type of behavior takes place during depressions.

The Labor Department did not discuss the massive discrepancy between its two employment surveys in its press release. Instead it gave a rosy assessment of all the jobs created last month. This included 25,000 new jobs in manufacturing, even though the recent ISM Manufacturing report (a private survey) indicated U.S. manufacturing activity shrank last month. So an industry that is losing business is hiring lots of new workers. That certainly makes a lot of sense all right.

One possible explanation for the discrepancy was that "inappropriate" statistical adjustments were made to the numbers in the business survey. While one should never rule out gross incompetence when discussing the output of the government statistical offices, a more cynical person might think that there was a purposeful effort to produce better numbers than actually exist because it's an election year. After all, those pesky downward revisions months later never get any notice from the press and the ugly truth can always be told later when no one is paying attention (and after they've voted).

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

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